The taxman cometh!
 

Question for the tax preparers:

The sale of inherited property is automatically a long-term capital asset transaction (long term cap gain/loss). Form 8949 asks for the date acquired and the instructions say to put "INHERITED" in the box. It also asks for the cost basis (which is stepped-up to the date of decedent's death). So what documents does the IRS require to show the asset being sold was actually an inheritence and what documents are needed for an 'explanation' of the basis on form 8949? Do you submit copies of the will, the deed, and an appraisal?

I'm no accountant, but I believe only if you are audited will they ask for the documents...but I'd sure want to have them on file.

I am a no account as well. The IRS seemed to think so and after an audit where they wanted to see a paper receipt of every transaction ever, they decided I was a upstanding honest taxpayer after all and had no change to the return. It only cost me the price of buying a new color laser printer - scanner and two reams of paper and two weeks of work to provide every receipt.
So if you are smart, keep a paper version of every receipt ever involved with the transaction.

Did you have the house appraised when got the house to assess the stepped up basis?

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I property taxes are collected on a "true cash" value, a tax statement from the year inherited should suffice. BUT...I'm not an accountant, and in a case like this, I would definitely contact a CPA, and perhaps a tax lawyer. No need to be penny wise and pound foolish in a case like this.

You don’t need to substantiate your basis along with your tax filing, only upon request if the IRS is examining you.

If an estate tax return was filed on behalf of the deceased, that would be my top choice for documentation to give to an auditor to substantiate the stepped up basis of inherited property. If the estate was not taxable and no return filed, then an appraisal should do.

I am an accountant.

Shortly after, but yes.

Thank you.

True there.

I wanted to get a jump on filing this year so I'm gathering up whatever documents are needed Early as possible to take to my tax guy.

Thank you.

About 8 years ago I got sent a check for the sale of shares in a privately held bank. Apparently my great-grandmother had propped up her small community bank when it almost failed during the Great Depression. She passed away in the 1986. So the shares passed to her heirs, my father being one. My father passed in 2006. My aunt became executor of my great grandmother's estate on his passing, and decided to liquidate her shares. I knew what the shares were worth on the date of sale in 2010, but the previous time a share had been sold was in 1973. I just assumed a flat rate of appreciation from 1973-2010, and figured I had four years of appreciation. It's really hard to value an illiquid asset.

I'm not so smart but I do have a stack of receipts!

File your return. No attachment needed that I’m aware of. If you get audited you can send the appraisal.


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That IRS will not accept a pile of receipts. They will tell you to organize them. As long as you have them, and could organize them, keep em.